Suppose that actual output is $120 billion and potential output is $156 billion. What is the output gap in

Suppose that actual output is $120 billion and potential output is $156 billion. What is the output gap in

this situation?

The output at the equilibrium level would be $120 billion while the potential production is $156 billion, thus creating a gap of $36 billion.

$156 – $120 = $36 billion.

Based on my above calculations, would you expect the unemployment rate to be higher than full employment or lower than full employment? Explain.

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